Editor’s note: "Retire at 40" is part two of an ongoing series focused on how to retire early and the FIRE movement. The introduction to the series is How to Retire Early in Six Steps. To see all early retirement articles, jump to the end.
Many people want to retire at 40 — or even younger. A recent conversation with an eight-year-old reshaped my perspective on modern views of work. When asked what he wanted to be when he grew up, he didn’t choose typical professions like a doctor or a police officer. Instead, he simply said, “Retired.”
The FIRE (Financial Independence, Retire Early) movement, while not a playground buzzword, has clearly permeated broader culture as a viable life strategy. Online communities dedicated to financial independence are thriving, with some subreddits amassing members in the hundreds of thousands and even millions.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
While the basics of a retirement checklist for your 50s and beyond are still relevant, many thirtysomethings are captivated by the prospect of leaving their jobs to enjoy freedom over their time. As the expert on financial risk, Nassim Nicholas Taleb, put it: “The three most harmful addictions are heroin, carbohydrates, and a monthly salary.”
Despite fears of a retirement crisis casting doubt on the feasibility of retiring at all, advancements in technology and access to financial tools have simplified the process of accumulating wealth.
Retire at 40
Today, aiming for early retirement by age 40 has become a popular goal. However, retirement data from 2016 to 2022 gathered by The Motley Fool revealed that only 1% of Americans between 40 and 44 are retired.
This highlights the challenge of retiring by 40. Yet, it remains achievable, requiring a deep commitment to short-term sacrifices for long-term benefits.
If you decide to take this route, the path will depend on personal factors like income and lifestyle, but anyone striving to retire early can adopt the general steps.
Save like it's your job
While traditional planning advice recommends saving 10-15% of your income for retirement, FIRE advocates often aim for up to 50-70%.
Achieving this level of savings is ambitious and requires comprehensive adjustments across all areas of your financial life, including cutting expenses and boosting income.
If you want to check your retirement saving progress relative to other workers, check out the average 401(k) balance by age.
Embrace smart spending
To maximize savings, eliminate unnecessary spending on things like unused memberships and subscriptions. But large expenses also need reevaluation. The Bureau of Labor Statistics’ Consumer Expenditure Survey found the average American spent $24,298 on housing and $12,295 on transportation. To cut costs, you may want to consider living with roommates or using public transit instead of owning a car.
However, this doesn’t mean forgoing all pleasures. Being frugal is about smart spending, not self-denial. People tend to quit goals that are too restrictive. Just be vigilant with non-essential expenses and especially debt, as it directly undermines your progress.
Finding a community of people who share your cost-cutting values may help you share resources, stick to your goals, and avoid loneliness when you finally do retire.
Boost your income
Earning more money is another way to raise your savings rate. Some strategies include negotiating a raise, seeking a better-paying job, freelancing or launching a side business.
You may also want to consider passive income sources, like vending machines (industry data shows the typical vending machine generates over $300 a month!), which can boost income without demanding more time.
Set a savings target
Of course, retiring early isn’t as simple as celebrating your 40th birthday and calling it quits. To retire comfortably by 40, you must first calculate your estimated living expenses, considering inflation, healthcare costs, housing and other personal expenditures. Online FIRE calculators can help you create your retirement number.
For perspective, participants in a recent survey said that the "magic number" for a comfortable retirement is almost $1.5 million, according to participants in a recent survey.
To find your retirement goal number, plug a few figures into Kiplinger's retirement calculator.
Stay calm and invest on — aggressively
Investing is essential to grow your savings and outpace inflation. Common investment strategies for early retirement include maxing out retirement accounts like IRAs and 401(k)s, which may offer an employer match.
The stock market, represented by the S&P 500, has an average return of about 10% per year dating back to 1957. Therefore, investing most of your portfolio in stocks, such as broadly diversified mutual funds, may help maximize growth.
Taking greater investing risk can lead to larger fluctuations in your portfolio. However, try to stay calm, knowing that historically, stocks have rebounded after every downturn.
Strategize your withdrawals
Retiring by age 40 requires not just reaching your savings goal but also managing your withdrawals effectively to ensure your funds last. This means carefully planning withdrawals to minimize taxes and avoid early withdrawal penalties.
One option is to save or convert existing funds to a Roth IRA for tax-free withdrawals. Additionally, you can utilize Substantially Equal Periodic Payments (SEPP) under IRS Rule 72(t), which allows for penalty-free withdrawals from retirement accounts before age 59½ under certain restrictions.
For more tips, consult my article on early retirement withdrawal strategies for the long haul.
Plan for healthcare
One of the biggest challenges of early retirement is healthcare since employer-sponsored coverage ends and Medicare isn’t available until age 65.
Options for maintaining coverage are limited. They include extending your employer’s insurance through COBRA, which can be costly, or purchasing a plan from the healthcare marketplace, which may offer more affordable choices depending on your income and location.
Don't forget the non-financial: purpose, leisure and fun
Early retirement isn’t just a financial decision but also a lifestyle one. Consider how you will spend your time, maintain social connections and fulfill personal goals without the structure of full-time employment. Research associates a strong sense of purpose with greater longevity, happiness and overall well-being.
So, what will give your life in retirement meaning?
How to retire by 45
Does retiring early by 40 sound a little too ambitious? Retiring at 45 offers a bit more flexibility. Studies show that working even just a few years longer can increase retirement income and even your lifespan.
You still want to implement strategies like increasing income, aggressive saving and smart investing. But this additional time allows for compounding investments and more contributions to retirement accounts.
Additionally, the extra years provide a buffer to refine your withdrawal strategies and solidify healthcare plans, easing the transition into early retirement.
These steps show that retiring by age 40 demands considerable focus and dedication. So, for a little inspiration, I leave you with the words of writer Annie Dillard: “How we spend our days is, of course, how we spend our lives.” By committing to diligent saving, you can transform your working days into days spent enjoying more of life.
Read More About Early Retirement
- How to Retire Early in Six Steps
- How to Retire at 50 or 55
- Retire Early for Adventure: Go Travel and Volunteer
- Will Retiring Early Make You Happier? It's Complicated
- Early Retirement Withdrawal Strategies for the Long Haul
- Five Early Retirement Mistakes to Avoid
- The Rule of 55: One Way to Fund Early Retirement
- A Sabbatical May Be a Smarter Move Than Early Retirement
- How SEPP 72(t) Can Help You Retire Early and Dodge Penalties
-
Need More Money for Retirement? You May Have Already Saved It.Over 29 million lost 401(k) accounts worth almost $1.65 trillion have been forgotten by their owners. Here are eight ways you can locate your account.
-
Five Ways to Save for Retirement in 2025If you did a poor job saving for retirement last year, don't despair. There are ways to build your nest egg in the new year.
-
The Wrong Money Question to Ask After Trump's ElectionIf you're wondering what moves to make with a new president moving into the White House, you're being dangerously shortsighted. Here's what to do instead.
-
Social Security and Medicare Funding: Is the Sky Falling?Social Security and Medicare are slowly running out of money, but what does that mean for the retirees counting on them? Actually, it's not all bad news.
-
What We Need to Do to Protect Retirees' Financial SecurityCognitive decline and aging in general put older retirees at risk of losing their financial security when they're the most vulnerable. What can be done?
-
Financial Planning: Sisters Should Be Doin' It for ThemselvesMore and more women are ringin' on their own financial bells (with apologies to Aretha Franklin and Eurythmics) — but that demands a robust financial plan.
-
Do You Know the Power of Whole Life Insurance in Retirement?Worried about legacy planning, market volatility or where to get cash to cover surprise medical or home repair bills? This little-known tool could help.
-
10 Ways Retirees Can Manage Income DistributionThe goal of a retirement income plan is to make the most of your money while ensuring that it lasts. These 10 strategies can help secure your financial future.
-
Gifting Earlier Rather Than Later Can Reap Big Tax BenefitsEven with Donald Trump's win, the future of the Tax Cuts and Jobs Act remains uncertain, so here's how to make the most of its provisions while you still can.
-
A Frugal Saver's Guide to Spotting Investment CostsSome of the fees that come with buying or holding stocks, bonds and other investments are obvious. Others can hide in plain sight.
